Hello everyone. I'm new here. I had a rather pressing question to ask about my personal financial situation. This may sound like the sob story of the year, it probably is, but I'm looking to aggressively pay my way out of the financial part of it.
First of all, I am 23 and about $75,000 in debt. How did this happen you ask? Easy. College and some really bad financial advice from my mom. Half of the debt comes from the government loans I personally took out for my second college, these are my doing and I have no issue with paying them on my own.

The other half is rather sticky and a sore subject for me. It comes from the loans I took out at my mother's prompting. Yes, I know it is my fault, I am to blame--but my mother told me to take out the then $26,000 loan with a 9.015% interest rate so I could go to the prestigious school she wanted me to go to--I know, excuses, excuses, but just let me lick my wounds a little, this is a sore spot for me. When this happened I was 18 and up until that point when my mom said it would be alright, it would be alright. She said that I would easily be able to pay it off once I graduated--she was really REALLY excited that I got into the university, and so was I of course. She also promised that she would pay interest while I was in school and then help me once I got out of school. Yeah...that's not going to happen. She anticipated getting raises and promotions during that time, but with the economy, it just didn't happen. Add to that a series of unfortunate events and her lack of an emergency fund I have had to loan her $1170 of my own money--I have long since stopped and you will find out why as you continue to read. So now I have a $36,000 private loan that I must take care of by myself. I've more or less come to peace with that. I know I can do it, it's just how to go about it at this point.

Now, I am gainfully employed with my stipend for grad school (I pay a small fee out of my paycheck each month, so no more debt for my MS degree). I just paid off my $1500 credit card debt (YAY!!!). I plan on keeping it just in case--I have maxed it out 3 or 4 times purely because of family emergencies, I have only bought 4 or 5 small things with it for myself in the 5 years that I've had it. Anyway, I am at a cross roads. I am torn between putting all my money into savings and then starting on my debt, socking away $1000 and then attacking my loans with the Dave Ramsey snowball method or finding a happy medium--save some, pay some. Now, before you say happy medium or snowball method, look at my sob story situation. My father walked out when I was 14--no help comes from him. My mother in the past year has been using illegal drugs in her spare time (no lie--I wish it was though). I have no friends and no family that could possibly help me out of a bad financial situation. If something happens, I'm sunk big time, as in practically out on the streets--as you can see, moving back in with my parents is an impossibility. I know a lot of people say that you should first save $1000 dollars and I will have $1270 socked away as of this up coming payday but I'm not sure if that is enough seeing that I have no one to help me should things really go south. Because of this I have devised a plan to spend the next 12 months saving for 12 months of expenses. This will be around $7000 because I don't have a lot of needs, don't pay attention to most of my wants, and live in a area where I don't need a car and all that goes with it--besides, I really don't make enough to handle a car plus living expenses without outside help say from my parents, but as you can see that is out of the question. With what I have left over after I take everything out, including the savings, I can pay off one of my tiniest loans ($1000) over the year. Does this sound like a good idea given my situation? I am also concerned about my life after graduation. What if I can't find a job right out of school? I'm going to need some cushion, right? Will $1000 really cut it? I'm also keeping in mind the various disasters that can happen with my family. My father leads a very unhealthy life, my mother has a drug problem, and my brother is involved with organized crime (I know it sounds like it's straight out of a movie, if you don't believe it, you're not alone, I hardly believe it myself)--anyone of them could pass away unexpectedly and none of them has any sort of life insurance. I could very easily have to spend a lot of money burying one of them (not to mention the travel and other expenses associated with taking care of things like that).

So I have seen on the internet that one should arrange their financial plan like this: $1000 dollar emergency fund, pay off all debt and then save 6-12 months of expenses. Should I follow this outline? Or should I rearrange some things given my precarious situation--I feel like I am literally walking on a tightrope covered with broken glass. I am totally into fleshing out my savings, paying off my debts all by myself, and becoming the self-made woman I know I can be.

Thanks so much for your help and advice. Please be gentle--I know my debt is my fault even if I do make excuses for it .

Wed Jul 10, 2013 3:12 pm

oldguySenior Member

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A 23 yr-old with a degree, a job, a $75k loan, and weird relatives. In many of the 195 nations of the world, that is a goal, not a sob story.

Anyway, your situation is not 'special' - most people live those problems. Actually, most of us have a similar set of life issues - some of us step up and handle them - an some fail.

Be careful not to perpetuate your problems by repeating. Eg, you mentioned getting 'only' 4 or 5 loans to buy things you wanted? And you are going forward with more schooling, even as you state that you were 'pushed' into colleges that had a poor 'return on investment'. As you say, your employer is paying the freight - but you are losing income (probably a far bigger cost than tuition).

What field is the BS? Is it a STEM degree or a 'soft' degree? If it is a marketable degree, why not put your BS to work at $60k to $80k/yr and pay-down the 9% loan with the income stream? Keep the <6% debt, no hurry to prepay that - instead invest your own money where it will earn more than 6%/yr and let compounding work for you.

Just an example - if you invest $5000/yr at 11%/yr you'll have $1.1M at age 53, $2.3M at age 60, and so on. So you don't want to derail a $2 million dollar fund by using all of your income to prepay low-cost debt.

Wed Jul 10, 2013 3:47 pm

JFranNew Member

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To OldGuy

Hello OldGuy,

Thank you very much for your advice and encouragement. I don't use my credit card for anything but emergencies now that it's paid off. Actually the 4 or 5 small things were things I bought because I had the money for them and wanted to work on building my credit. I'm more of less terrified of debt at this point and don't want to go back into it. Actually I'm wondering about how prudent it would be to even keep it. The line of credit that I have is only slightly more than what I will have in my savings account by next payday. And two paydays from now I will have overshot the line of credit by $200. Isn't that kind of the point of savings? So you don't have to use credit? I know that you have to use your credit to build your credit but perhaps I can build my credit by paying my loans instead instead of using my credit card. Heaven knows don't even want to touch it with a 50 foot pole as it is.

I have a BS degree in agriculture. This is a pretty good field. It's constantly growing and job placement is very good from what I hear (because no matter how bad the economy is, people still need to eat). That being said, a BS degree will get you around ~$30,000 whereas an MS degree can net the $50-80,000 you were talking about. And I am considering going into academia, so a PhD. could be on the horizon. Because it is a research field I won't have to pay more than a small fee to continue. But you're right, I am losing income by working for barely above minimum wage. I want to finish what I started with my MS degree, but I'm on the fence with the PhD. and planned on using these two or so years wisely to deliberate just what direction I should go in.

Thank you so much for your help!

Wed Jul 10, 2013 5:12 pm

oldguySenior Member

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quote: I have a BS degree in agriculture

What part of Ag are you in - ie, grain grower, GMO research, livestock nutritian, dairy, machinery reserch, futures markets? Lots of good companies - Monsanto, Deere/Cat, Freeman. Or Smithfield if you want to work in China, lol.

quote: Actually the 4 or 5 small things were things I bought because I had the money for them and wanted to work on building my credit. I'm more of less terrified of debt at this point and don't want to go back into it.

Don't manage your business just to molify the credit scoring system, borrow what makes financial sense and repay based on the math. And don't be afraid to use credit, it is a tool.

Easy eg - when we need a car we could sell $28k of stock, use $3k to pay taxes on the profit, and use the $25k to pay cash for a car. But instead I 100% finance the car and make payments for 5 yrs, ie pay about $28k for a $25k car. Meanwhile my $28k remains in the stock fund, plus the $4k that I getby selling the old car privately - ie, I have $32k in our fund that historically doubles every 6 1/2 years. So while I'm slowly repaying the $28k car loan, my $32k is growing to $64,000,

And we do the same with our home and our rental houses - borrow on them and invest elsewhere, I would never pay off a house when I can get 4%, 30 yr financing - IMO, that is misappropriation of your income stream.

But yeah, revolving consumer debt with toxic rates will kill you, borrow wisely. What are the amounts and rates on your SLs? And for how long?

Wed Jul 10, 2013 9:40 pm

JFranNew Member

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Hello OldGuy

I am in research and development. For that sector a PhD will get me the farthest. But essentially if you have a degree in ag you can get into just about any agricultural industry. I forgot to mention in my last reply that this is a field that I like. I used to be an international business and Russian major (something my mother more or less picked out for me), that's what I went to my first school for. I hated it and decided to transfer and start the agriculture program which I loved. I just don't want it to seem like I'm doing something I hate because my mother told me too .

I think it is because I'm a newbie, but I had never heard of what you are saying about credit and borrowing. I got it into my mind that cash=good, credit=bad, investments="huh?". I will have to keep in mind and research what you said for the future. I didn't know things could work like that. I honestly never thought that it could be smarter to borrow instead of using cash.

In regards to my student loans I've got $15500 at 6.8 % interest rate, and have accrued $2034.10 in interest in unsubsidized loans (the interest is piling on while I'm in school). I've got $21500 with different interest rates for each individual loan ranging from 3.4 to 6 %, these are subsidized so the interest doesn't start until I graduate. In all I have $39000 in government loans. I have my private loan for $36000 with a 9.015%. If need be I can provide a list of my individual government loans and interest rates.

Thanks so much and have a wonderful day!

Thu Jul 11, 2013 8:07 pm

oldguySenior Member

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quote: Russian major (something my mother more or less picked out for me), that's what I went to my first school for. I hated it and decided to transfer and start the agriculture program which I loved.

A wise switch - and now you are in a marketable field. Think of the many others who graduate w/ a $100,000 student loan & a BA in Pysch, or Russian Lit, or Women's Studies. (When they show up in HR with their resume we have nothing to offer them, we can't even give them hope.)

quote: I didn't know things could work like that. I honestly never thought that it could be smarter to borrow instead of using cash.

lol - few do, that's why there are so few rich people.

quote: I've got $15500 at 6.8 % interest rate, and have accrued $2034.10 in interest in unsubsidized loans (the interest is piling on while I'm in school). I've got $21500 with different interest rates for each individual loan ranging from 3.4 to 6 %,

I would not hurry to pay those, just pay minimums. Especially the 3.4% loan, never prepay <5% money. And don't fixate about avoidng interest. Eg, when I borrow an extra $50,000 on a rental house it costs me $268/m for 30 yrs ($97,000) - ie, I pay $47,000 for the use of that $50,000. I invest the $50k at 11%/yr for 30 yrs, that is $1,100,000. So I'm happy to pay the $47k as a cost of doing business.

As for your 'cross roads' decision tree, I would back off on the rate of accumulating credentials and accelerate the earning stream. Eg, maybe you could work at a full time, full pay ag carrer job - and build credits more slowly - probably entirely paid for by your employer. Ie, a full salary over the next 5yrs and a n MS in 2017 trumps being sidelined for a year or two while getting the MS.

Thu Jul 11, 2013 9:25 pm

JFranNew Member

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Hello OldGuy,
Thanks for more of your advice. It is very useful and informative!

I am studying crop physiology. The peanut is my plant of interest. I'm pretty much studying to become a scientist. That being said any higher education that I take on must be accompanied by a labor intensive hands-on research project--in fact it's all about the research, classes and credits are just the icing on the cake. This is why we are paid as science grad students versus having to pay--we are working for government institutions (state schools) to do the grunt work for research projects that can be used to better America in some kind of way.

I'm actually working on that component as we speak (what I'm doing is akin to farm work, with a very high tech analytical twist). It's a full time job in itself so to get a job now would mean I just stick with my BS and if I want my MS plan on leaving the work force to finish it--that's what all of the returning students I know have have had to do--they leave the work force to work on their MS or PhD. Actually it's nearly impossible to get a little side job at McDonald's our degree programs are so all-consuming. And the way it's rigged, I can't leave and come back to it later, since I'm working with live peanut plants, I have to experiment with them this year, next year and then publish papers. Granted a BS degree will bring in more money now but an MS degree in 2017 means that I left my job in 2015 to start on a new MS program, unfortunately. My logic may be wrong, but while I could make 30,000 dollar now with a BS, It will probably hover around that level until 2017 when I got my MS and a job that would net me $40,000 or more. With my stipend once I save up for my emergency fund I can afford to pay at least my private loan. So I could afford to pay them if I'm making what I make now or making what I could make with a job. If I stay in my MS program I could get a job for ~$40,000 at the start of 2015 if I can (and will) graduate on time). Is there a flaw to this logic?

I'm sort of airing on the side that since I started my MS project already it may be best to see it through. Now my PhD. is another story. In both the private and the public sector I could net 6 figures, that would be after 2 to 4 years at a $40,000 post doctorate job but I may just take off after I get my MS and go into the work force because I could make more money sooner rather than later (the scenario you were talking about with the BS vs MS). With an MS, I don't know if I'd ever make as much as I would make with a PhD. no matter how many years I worked, however.

So once I save up for my emergency fund I should start paying towards my private loan (which is actually $37195.48 ) with the high interest rate and worry about the government loans later? (keep in mind I don't have to pay anything right now. The loans are deferred until I get out of school--but the interest continues to pile on). Now, my private loan has a payback term of 20 years(the government loans are about 10 years I think) and once I'm out of school if I set up direct deposit payments to it the interest rate "drops" down to 8.65.

Thank you so much!

Fri Jul 12, 2013 9:19 pm

oldguySenior Member

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quote: for research projects that can be used to better America in some kind of way.

lol - Geo Wash Carver already did that - 300 ways to use a peanut?

Are peanuts GM'd for various lengths of maturity for different regions and for various water availability to optimize yield? Center pivot water? GA & AB?

quote: If I stay in my MS program I could get a job for ~$40,000 at the start of 2015 if I can (and will) graduate on time). Is there a flaw to this logic?

I think you have it right. In our engineering group, some stayed in school to get the MS, some worked a full-time $50k job and took evening classes for 4 or 5 yrs to get the MS (and paid for by an employer). The latter method was usually financially better.

Fri Jul 12, 2013 11:46 pm

JFranNew Member

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Hello Old Guy,

While GW Carver came up with 300 ways to use the peanut seed, I'm looking at the peanut plants reaction to various stresses--namely drought stress. I don't work with GMOs--that's usually in the department of plant breeding and genetics. I'm more in the department of looking at what the plants do, which plants do it the best and publishing the information on it. My work is a lot more grass roots as well compared to GMO research. I'm looking at the physiological and molecular responses the peanut varieties have to drought stress so I can report directly to the farmers in my region, giving them the details on which varieties will grow best in our conditions. Peanuts are GM'd however. While I work with peanuts that were bred traditionally, GM'd peanuts are used at my research station and the GMing is most for disease tolerance which has helped tremendously from what I hear. They are working on getting the peanuts approved for farmers to use so as the particular disease that the normal peanuts are susceptible to can lead to losses of up to 50%.

I guess that's the trade off with science grad programs. On the one hand you get paid peanuts, can't do anything else and miss out on the money you could be making in a real job. On the other hand, not only is your schooling paid for, you get paid (even if it is peanuts) and can get in and out with a degree in 2 years or so if you play your cards right and hopefully land a job with a nice paycheck or go for your PhD which can one day in the relatively near future land you 6 figures.
Now if I was in the field of agribusiness the model used by many of the engineers in your group would have worked perfectly--that would have just been taking some classes in the evenings, writing a thesis and getting a degree, the super-hands on component wouldn't be there allowing for plenty of time to work a real job and get ahead career wise.